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Despite Hitches, US Utilities Look Poised for Growth in 2017

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Jan. 9 2017, Updated 9:06 a.m. ET

Price targets

NextEra Energy (NEE) has an estimated gain of 15% through next year. According to analysts’ estimates, NEE has a median price $136.67, as compared to its current market price of $119.10.

By comparison, and according to analysts’ consensus estimates, Exelon’s (EXC) one-year median price target is $37.7, implying a 7% upside from its current price of $35.5. Southern Company (SO) has a one-year median price target of $50.9, implying an upside of 4% in the next year, as compared to its current market price of $48.8.

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Outlook: US utilities in 2017

As in 2016, US utilities (XLU) continue to have bright growth prospects for 2017. Many utilities such as NextEra Energy and Duke Energy could thus be smart investment options due to their attractive risk and reward propositions, though their movement in market exchanges could turn volatile after the Fed’s interest rate hikes become active. Still, their expected earnings and dividend growth prospects don’t look fragile in the near term—they’re likely to pay stable or even higher dividends in 2017.

That said, the pace of M&As (mergers and acquisitions) among top US utilities could slow down in 2017 because many have recently acquired or are in the process of acquiring their target companies. Rising interest rates could also deter utilities from new M&As for the time being.

Meanwhile, cheaper natural gas is expected to drive utilities’ fundamentals in 2017, and increasing gas-fired generation capacities and the expansion of renewables could continue to reduce these companies’ carbon footprints, even without the implementation of the Clean Power Plan.

To know more about utilities and their price targets, check out Market Realist’s A Look at S&P 500 Utilities with Attractive Upsides in 2017.

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